Nokia: The Aftershocks Continue

By Eric Savitz

To review: The company yesterday reported unexpected weakness in both the smart phone market and its Nokia Siemens equipment joint venture. Nokia is losing market share in both areas; what seemed surprise people is the magnitude of the troubles in both areas.

Let’s run through some of the fallout:

Nokia has made some management changes. CFO Rick Simonson becomes head of the Mobile Phones segment of the company’s Devices unit, as well as head of strategic sourcing for all of Devices, which includes both Mobile Phones and Smart Phones. Timo Ihamuotila, now head of sales, becomes CFO.

Moody’s today downgraded Nokia’s senior debt to A2 from A1 to reflect the rating agency’s view that the mobile phone market will become more challenging for Nokia due to more modest long-term growth and more formidable competition. Moody’s says that Nokia “is unlikely to return near-term to the superior credit metrics that have marked the company’s credit profile for many years.” The agency also said that it believes the mobile phone market is “nearing saturation.” And it asserts that the Nokia Siemens venture may require more restructuring.

Bloomberg notes that Nokia yesterday took a $1.35 billion writedown of its stake in Nokia Siemens, and that that partnership may be “unraveling.” Just what would happen is unclear; neither side seems eager to buy out the stake of the other, and an IPO would seem problematic given the troubles in the business.

Gabelli analyst Hendi Susanto downgraded the stock to Hold from Buy. “We will become more positive when Nokia can line-up new competitive smartphones and Nokia Siemens Network can
revamp its product businesses, reverse its progressive market share loss, and deliver significant improvement in its margins.”

Didier Scemama, an analyst with Royal Bank of Scotland’s ABN Amro unit, cut his rating to Hold from Buy. “Although we believe Nokia’s product portfolio is improving, competition remains intense and will likely cap any margin improvement in the medium term,” he writes.

And there is plenty of other worrisome commentary from the Street on both sides of the pond.

Ergo, NOK, which yesterday fell $1.71, or 11.1%, to $13.68, today is down another 18 cents, or 1.3%, to $13.50.

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There are 15 comments

OCTOBER 16, 2009 11:58 A.M.

Parkite wrote:

I can't remember the last time I saw someone w/a Nokia handset. Everyone has smartphones today.

OCTOBER 16, 2009 12:05 P.M.

Steve's Tail Lights wrote:

iPhone bringing them to their knees... It's game over they just don't realize it yet. 85,000 apps. So they are just now going to start to build a touchscreen iPhone killer and then they are going to ramp up to 85,000 apps in a few years? Too funny.

OCTOBER 16, 2009 12:08 P.M.

James wrote:

Wouldn't the same troubles affecting Nokia be affecting Research in Motion also because these two companies face in a large part the same kind of problems?

OCTOBER 16, 2009 12:11 P.M.

Global Warming wrote:

They could start making rubber boots again.

OCTOBER 16, 2009 12:16 P.M.

Parkite wrote:

@James - No, not at all. Drop your axe. You are like a broken record.

OCTOBER 16, 2009 12:42 P.M.

PalmWatcher wrote:

Nokia may be losing shares right now, but it has the financial strength to survive and adapt. If it is able to adapt within about two years, coming out with something that consumers like, Nokia will continue to do well.

Of course, Nokia has to not worry about matching Pre or iPhone or RIMM, it has to come up with its own solution to consumer and business needs and address them using whatever is the current technologies. That is how it can survive.

If Nokia wastes its effort on only matching the features of the competitors, then the ease-of-use issue will cause it to continue to lose market shares.

We will see if Nokia adapts effectively over the next six months.

OCTOBER 16, 2009 2:11 P.M.

Mark wrote:

Uh... parkite, Nokia dominate the smartphone market. They sold 16.4 million of them this quarter.

To put that in perspective, Nokia do not have a meaningful presence in the US and a third of their sales would be in China. That leaves, say, about 10 million smartphones in the markets where they go head to head with RIM and Apple. The iPhone 3G in its best quarter sold 6.89 million. Half of these were in the US which leaves, say, 3.5 million for those markets.

So, basically, Nokia outsell Apple by a factor of 3.

Yeah, they're doomed LOL!

OCTOBER 16, 2009 2:44 P.M.

More? wrote:

What a surprise. More nonsense from Eric Savitz. Eric suddenly trusts Moody's? We all know about the reliability of the ratings from Moody's. It appears that Eric is not familiar with the mortgage crisis.

Has anyone seen the latest HTC Hero? It has a 5MP camera with auto focus, excellent hardware and runs on Android OS. As much as I like my iPhone I just couldn't justify ATT gouging me anymore so I decided to buy the Hero at Sprint. They gave me a 30 guarantee, which I thought was awesome. Believe it or not Sprints network seems light years ahead of ATT's. It might be just in the area that I have service but it makes a big difference.

OCTOBER 16, 2009 3:54 P.M.

Parkite wrote:

@Mark - I've got a Buick for sale if you want to buy it. You'd look good in it w/your Nokia smartphone.

OCTOBER 16, 2009 4:44 P.M.

James wrote:

iPhones aside, HTC is the biggest rival ripping consumers away from Rim, especially now that we have seen the disappointing Storm 2 which doesn't stack up to the Hero. iPhone apps are passing the 100000 mark and Android is reaching 5000. I am buying the Hero also.

OCTOBER 16, 2009 6:42 P.M.

Rasping in Motion wrote:

That's the sound you will hear from carriers cursing at warehouses of unsold Curves, Bolds, Tours, and Storms. Heck, you may even hear the raspings from the peddlers standing outside Verizons and Sprints and Telus handing out new blackberrys trying to lure people into just looking at those BOGOberrys.

OCTOBER 17, 2009 5:27 A.M.

Anonymous wrote:

Wow ! This aint so bad . You should have seen it in 68 when Godzilla rocked Tokyo ... that WAS bad .

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Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.